oversight

Selected Aspects of the Operation of the St. Louis Housing Authority

Published by the Government Accountability Office on 1971-04-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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               Selected Aspects.Of The Operation
               Of The St. Louis Housing Authority
                                                                             8-118718


                Department of Housing 'and
                  Urban Development




                BY THE COMPTROLLER GENERAL'
                OF THE UNITED :STATES


                                                         APRIL21 1,9 7 1
 B;
  'A   ยท              COMPTROLLER GENERAL OF THE UNITED STATES
 A   _WASHINGTON,                          D.C. 20548




B- 118718



Dear Mr. Clay:

       The General Accounting Office has examined into selected aspects
of the operation of the St. Louis Housing Authority, which develops, owns,
and operates low-rent public housing projects in St. Louis, Missouri.
The review was made in accordance with your request of February 13,
1970, and subsequent discussions with you and your staff.

       The results of our examination are summarized in the digest. We
plan to make no further distribution of this report unless copies are
specifically requested, and then we shall make distribution only after
your agreement has been obtained or public announcement has been
made by you concerning the contents of the report.

       We did not obtain written comments on the matters discussed in
this report from the Department of Housing and Urban Development,
the St. Louis Housing Authority, the St. Louis Housing Authority's
board of commissioners, or the St. Louis Civic Alliance. This fact
should be taken into consideration in any use made of the information
presented.

      We trust that the information furnished will serve the purpose of
your request.

                                              Sincerely yours,




                                              Comptroller General
                                              of the United States

The Honorable William L. Clay
House of Representatives




                    50TH ANNIVERSARY 1921-1971
COMPTROLLER GENERAL'S REPORT TO                SELECTED ASPECTS OF
THE HONORABLE WILLIAM L. CLAY                  THE OPERATION OF THE ST. LOUIS
HOUSE OF REPRESENTATIVES                       HOUSING AUTHORITY
                                               Department of Housing and Urban
                                               Development B-118718

D IG E S T


WHY THE REVIEW WAS MADE

      In October 1969, the tenants of low-rent public housing in St. Louis,
      Missouri, ended a 9-month rent strike against the St. Louis Housing Au-
      thority (hereinafter referred to as the Authority). The strike settle-
      ment agreement provided for management of the projects by a newly formed
      coalition including tenants, community leaders, and Teamsters Union offi-
      cials, known as the St. Louis Civic Alliance for Housing (hereinafter re-
      ferred to as the Alliance), and for the appointment of a new board of
      commissioners of the Authority. Two members of the board were to be
      tenants of low-rent public housing.
      At the request of Congressman William L. Clay, the General Accounting
      Office (GAO) reviewed seven areas of the Authority's operations in rela-
      tion to requirements established by the Department of Housing and Urban
      Development (HUD). (See pp. 4 to 7.) The areas are discussed under
      italic subheadings in the following section.
      The Authority as of June 1970 had about 8,000 housing units, in operation
      or under construction., for which HUD was providing most of the funds.
      GAO did not obtain written comments on the matters discussed in this re-
      port from HUD, the Authority, the Authority's board of commissioners, or
      the Alliance.

FINDINGS AND CONCLUSIONS

      Arrangements between Authority and AZZiance

      The management of low-rent public housing by the Alliance contemplated
      by the rent strike settlement agreement did not materialize. An Alliance
      report in April 1970 indicated that a management contract was being pre-
      pared. Alliance officials, however, advised GAO that the management idea
      had been abandoned. The Authority's board of commissioners said that it
      was unaware of this and informed GAO that a written agreement was needed
      which would define the roles of all parties involved in St. Louis public
      housing. HUD officials stated that they considered the Authority's
      board of commissioners to be the official body operating St. Louis public
      housing. (See pp. 8 to 14.)
Tear Sheet

                                                    APRIL211 97 1
Turnkey housing projects

The developers of the Authority's 25 "turnkey" housing projects were se-
lected before the Alliance was formed. (Turnkey housing refers to proj-
ects constructed by a private developer on his own site for subsequent
purchase by a local housing authority.) GAO found that four members
and/or executives of the Alliance had an interest in six of the 25 turn-
key projects as either project developers or consultants to the devel-
opers. Those six projects were initiated and received -HUD approval prior
to the formation of the Alliance. The Authority had awarded a contract
for one of the projects in July 1969. The final price for the remaining
projects had not been negotiated at the time of GAO's review. (See pp.
15 to 25.)
Tenants appointed to board
As a condition for ending the rent strike, two tenants were appointed to
the Authority's board of commissioners in October 1969. These tenants
were appointed about 2 months after the Missouri attorney general had
expressed the opinion that such appointments were contrary to Missouri
law. The HUD General Counsel, in November 1969, issued a legal opinion
indicating that HUD had no objection to, and indeed encouraged, the ap-
pointment of tenants as commissioners when permissible under State and
local law. (See pp. 26 to 31.)
The rental rate charged one of the tenants on the board of commissioners
was reduced at the time new rent schedules were put into effect, on the
basis of the tenant's statement that he had no income. This action was
subsequent to his appointment to the board of commissioners. (See pp.
32 to 35.)
Dismissal of employees

In February 1970, the Authority terminated the services of 103 employees,
who were selected by a private management consultant employed by the
Alliance. The consultant could provide no documentation to support the
manner of selection. He informed GAO that the criteria used were primar-
ily economic as he had been directed by the Alliance to reduce the Au-
thority's payroll as much as possible. By March 31, 1970, 31 of the ter-
minated employees had been rehired by the Authority. HUD had no require-
ments for housing authority personnel practices other than that housing
authorities follow personnel policies compatible with local practice.
(See pp. 36 to 39.)
Rents withheld

Rents amounting to $769,205 were not paid during the rent strike. During
the first 3 months of the strike, some of the tenant strikers paid rent
to strike leaders, who deposited the funds in bank accounts. Through
court action, the Authority obtained $108,017 of those funds. Subse-
quently, the strike leaders collected additional rentals of $112,907,


                              2
      which were returned to the tenants when the strike ended. The applica-
      tion of rents attached by the court and rent credits and adjustments
      required by the strike settlement agreement reduced the rent owed to the'
      Authority after the strike to $344,600. (See pp. 40 to 46.)
      Status of delinquent rents
      As of March 31, 1970, rents totaling $698,600 were owed to the Authority,
      including $537,100 owed by resident tenants and $161,500 owed by tenants
      who had vacated. The Authority took no significant actions to collect
      delinquent rents from the end of the rent strike in October 1969 until
      June 1970 because of the delay caused by the computation and application
      of various rent credits required by the strike settlement agreement. In
      June 1970, the Authority began filing lawsuits against resident tenants
      for collection of rents not paid by tenants subsequent to the rent
      strike. Tenants who had vacated were told that, unless they paid, their
      accounts would be given to a collection agency. The collection agency's
      fee is 50 percent of the amount collected. Neither the Alliance nor HUD
      has taken an active role in the collection of delinquent rents owed to
      the Authority. (See pp. 47 to 52.)
      Modernization program
      In January 1970, HUD approved the Authority's plan for a $1.1 million
      modernization program prepared by the' Alliance. Funds were made avail-
      able from unexpended money previously provided by HUD for another pro-
      gram, contingent upon the Authority's agreement to terminate work on the.
      other program at the earliest practicable date.
      In fiscal year 1970, HUD allocated another $5 million in modernization
      funds for the Authority. The $5 million was not made available because
      a physical security program had not been established for St. Louis public
      housing. (See pp. 53 to 59.)




Tear Sheet




                                    3
                         Contents

                                                         Page
DIGEST                                                     1

CHAPTER

   1      INTRODUCTION                                    4

   2      ARRANGEMENTS BETWEEN THE ST. LOUIS HOUSING
          AUTHORITY AND THE CIVIC ALLIANCE FOR HOUS-
          ING FOR THE MANAGEMENT OF PUBLIC HOUSING IN
          ST. LOUIS                                       8
              Status of the proposed management con-
                tract                                     8
              Alliance involvement in housing opera-
                tions                                    10
              Commissioners' undated letters of res-
                ignation                                 -13

  3       COMPLIANCE WITH HUD REGULATIONS ON POSSIBLE
          CONFLICTS OF INTEREST REGARDING TURNKEY
          HOUSING PROPOSALS                              15
              Selection of turnkey developers            16
              Involvement of Alliance members and ex-
                ecutives in turnkey projects             17
              Turnkey developer consultants also serv-
                ing as consultants to board of commis-
                sioners                                  24

  4       PUBLIC HOUSING TENANTS ON THE AUTHORITY'S
          BOARD OF COMMISSIONERS AND THE STATUS
          OF THEIR RENTS                                 26
              Inclusion of two tenants on the Author-
                ity's board of commissioners             27
              Rent status and income eligibility of
              tenant-commissioners                       32

  5       DISMISSAL OF EMPLOYEES                         36

  6       DISPOSITION OF AND ACCOUNTING FOR RENT MONEY
          NOT PAID DURING THE TENANT RENT STRIKE         40
CHAPTER                                                     Page

                 Withheld rent deposited in banks           41
                 Rent money held by strike leaders          42
                 Status of rents owed for strike period     44

      7      STATUS OF DELINQUENT RENTALS                    47
                 Efforts taken to collect delinquent
                   rentals                                   49
                 Collection of delinquent rentals owed by
                   vacated tenants              k            50

      8      APPROVAL AND USE OF MODERNIZATION FUNDS         53
                 Modernization programs after the rent
                   strike                                    54
                 Modernization programs before the rent
                   strike                                    57

      9      SCOPE OF REVIEW                                 60

                          ABBREVIATIONS

CPA       Certified Public Accountant

GAO       General Accounting Office

HUD       Department of Housing and Urban Development
COMPTROLLER GENERAL'S REPORT TO               SELECTED ASPECTS OF
THE HONORABLE WILLIAM L. CLAY                 THE OPERATION OF THE ST. LOUIS
HOUSE OF REPRESENTATIVES                      HOUSING AUTHORITY
                                              Department of Housing and Urban
                                              Development B-118718

DIGEST

WHY THE REVIEW WAS MADE

     In October 1969, the tenants of low-rent public housing in St. Louis,
     Missouri, ended a 9-month rent strike against the St. Louis Housing Au-
     thority (hereinafter referred to as the Authority). The strike settle-
     ment agreement provided for management of the projects by a newly formed
     coalition including tenants, community leaders, and Teamsters Union offi-
     cials, known as the St. Louis Civic Alliance for Housing (hereinafter re-
     ferred to as the Alliance), and for the appointment of a new board of
     commissioners of the Authority. Two members of the board were to be
     tenants of low-rent public housing.
     At the request of Congressman William L. Clay, the General Accounting
     Office (GAO) reviewed seven areas of the Authority's operations in rela-
     tion to requirements established by the Department of Housing and Urban
     Development (HUD). (See pp. 4 to 7.) The areas are discussed under
     italic subheadings in the following section.
     The Authority as of June 1970 had about 8,000 housing units, in operation
     or under construction, for which HUD was providing most of the funds.
     GAO did not obtain written comments on the matters discussed in this re-
     port from HUD, the Authority, the Authority's board of commissioners, or
     the Alliance.

FINDINGS AND CONCLUSIONS

     Arrangements between Authority and AZZiance

     The management of low-rent public housing by the Alliance contemplated
     by the rent strike settlement agreement did not materialize. An Alliance
     report in April 1970 indicated that a management contract was being pre-
     pared. Alliance officials, however, advised GAO that the management idea
     had been abandoned. The Authority's board of commissioners said that it
     was unaware of this and informed GAO that a written agreement was needed
     which would define the roles of all parties involved in St. Louis public
     housing. HUD officials stated that they considered the Authority's
     board of commissioners to be the official body operating St. Louis public
     housing. (See pp. 8 to 14.)
Turnkey housing projects

The developers of the Authority's 25 "turnkey" housing projects were se-
lected before the Alliance was formed. (Turnkey housing refers to proj-
ects constructed by a private developer on his own site for subsequent
purchase by a local housing authority.) GAO found that four members
and/or executives of the Alliance had an interest in six of the 25 turn-
key projects as either project developers or consultants to the devel-
opers. Those six projects were initiated and received HUD approval prior
to the formation of the Alliance. The Authority had awarded a contract
for one of the projects in July 1969. The final price for the remaining
projects had not been negotiated at the time of GAO's review. (See pp.
15 to 25.)
Tenants appointed to board
As a condition for ending the rent strike, two tenants were appointed to
the Authority's board of commissioners in October 1969. These tenants
were appointed about 2 months after the Missouri attorney general had
expressed the opinion that such appointments were contrary to Missouri
law. The HUD General Counsel, in November 1969, issued a legal opinion
indicating that HUD had no objection to, and indeed encouraged, the ap-
pointment of tenants as commissioners when permissible under State and
local law. (See pp. 26 to 31.)
The rental rate charged one of the tenants on the board of commissioners
was reduced at the time new rent schedules were put into effect, on the
basis of the tenant's statement that he had no income. This action was
subsequent to his appointment to the board of commissioners. (See pp.
32 to 35.)
Dismissal of employees

In February 1970, the Authority terminated the services of 103 employees,
who were selected by a private management consultant employed by the
Alliance. The consultant could provide no documentation to support the
manner of selection. He informed GAO that the criteria used were primar-
ily economic as he had been directed by the Alliance to reduce the Au-
thority's payroll as much as possible. By March 31, 1970, 31 of the ter-
minated employees had been rehired by the Authority. HUD had no require-
ments for housing authority personnel practices other than that housing
authorities follow personnel policies compatible with local practice.
(See pp. 36 to 39.)
Rents withheld

Rents amounting to $769,205 were not paid during the rent strike. During
the first 3 months of the strike, some of the tenant strikers paid rent
to strike leaders, who deposited the funds in bank accounts. Through
court action, the Authority obtained $108,017 of those funds. Subse-
quently, the strike leaders collected additional rentals of $112,907,


                              2
which were returned to the tenants when the strike ended. The applica-
tion of rents attached by the court and rent credits and adjustments
required by the strike settlement agreement reduced the rent owed to the
Authority after the strike to $344,600. (See pp. 40 to 46.)
Status of delinquent rents

As of March 31, 1970, rents totaling $698,600 were owed to the Authority,
including $537,100 owed by resident tenants and $161,500 owed by tenants
who had vacated. The Authority took no significant actions to collect
delinquent rents from the end of the rent strike in October 1969 until
June 1970 because of the delay caused by the computation and application
of various rent credits required by the strike settlement agreement. In
June 1970, the Authority began filing lawsuits against resident tenants
for collection of rents not paid by tenants subsequent to the rent
strike. Tenants who had vacated were told that, unless they paid, their
accounts would be given to a collection agency. The collection agency's
fee is 50 percent of the amount collected. Neither the Alliance nor HUD
has taken an active role in the collection of delinquent rents owed to
the Authority. (See pp. 47 to 52.)
Modernization programn

In January 1970, HUD approved the Authority's plan for a $1.1 million
modernization program prepared by the Alliance. Funds were made avail-
able from unexpended money previously provided by HUD for another pro-
gram, contingent upon the Authority's agreement to terminate work on the
other program at the earliest practicable date.
In fiscal year 1970, HUD allocated another $5 million in modernization
funds for the Authority. The $5 million was not made available because
a physical security program had not been established for St. Louis public
housing. (See pp. 53 to 59.)




                              3
                         CHAPTER 1

                       INTRODUCTION

     The General Accounting Office has reviewed selected as-
pects of the operation of the St. Louis Housing Authority,
St. Louis, Missouri, following a rent strike by tenants of
low-rent housing projects owned by the Authority. The Hous-
ing Act of 1937, as amended (42 U.S.C. 1401), authorizes the
Department of Housing and Urban Development (HUD) to conduct
a program of housing assistance under which local govern-
ments establish independent legal entities--known as local
housing authorities--to develop, own, and operate low-rent
public housing projects.

     Our review was made in response to a request by Con-
gressman William L. Clay in a letter to us dated February 13,
1970. At a meeting with the Congressman on March 2, 1970,
we agreed to examine into the:

     1. Contractual arrangements between the Authority and
        the St. Louis Civic Alliance for Housing, a coalition
        including community leaders and Teamsters Union of-
        ficials.

    2. Compliance with HUD requirements dealing with con-
       flicts of interest on turnkey housing proposals,
       particularly the proposal for the James House proj-
       ect.

    3. Inclusion of two public housing tenants on the board
       of commissioners of the Authority and the rent status
       and income eligibility of these two members.

    4. Compliance with HUD regulations in the dismissal of
       about 100 employees of the Authority and the subse-
       quent rehiring of some of them.

    5. Disposition of rent moneys withheld by some tenants
       of the Authority's low-rent public housing projects
       during a 9-month rent strike.




                             4
     6. Action being taken to collect delinquent rents owed
        by the tenants.

     7. Amounts of modernization funds received by the Au-
        rhority from HUD and the use being made of such
        funds.

     The scope of our review is described in chapter 9.

      In an attempt to have rents reduced and conditions im-
proved, some of the tenants of the Authority's low-rent pub-
lic housing projects withheld rent payments during the pe-
riod February 1, 1969, to October 29, 1969.   In June 1969,
attempts to settle the rent strike reached an impasse and
the Mayor of St. Louis requested Mr. Harold J. Gibbons, pres-
ident of Teamsters Joint Council No. 13, to help solve the
public housing dilemma by heading a civic fund-raising com-
mittee.- Mr. Gibbons expressed the belief that the fund-
raising approach would not provide a solution; however, he
did initiate a series of meetings with Teamsters Union staff
members to evaluate the entire St. Louis public housing sit-
uation. Subsequently a HUD task force surveyed the Author-
ity's operations and held discussions with Teamsters offi-
cials. The task force reported to HUD that it was impressed
with the expertise of the Teamsters representatives and rec-
ommended that management and operation of the St. Louis pub-
lic housing program be turned over to the Teamsters.

     In August 1969, the strike leaders urged Mr. Gibbons to
assume leadership in the settlement of the strike.
Mr. Gibbons accepted the strike leaders' invitation and ini-
tiated a series of meetings with community leaders to de-
velop a coalition designed to settle the strike and super-
vise the St. Louis housing operations. On October 10, 1969,
a coalition was formed which adopted the name St. Louis
Civic Alliance for Housing. The Alliance included in its
membership prominent professional, business, and religious
leaders; tenants of public housing; and labor union officials,
including Teamsters officials. The Alliance accepted a
strike settlement program negotiated by Mr. Gibbons with the
rent strike leaders and the Authority's new board of com-
missioners.



                              5
     A memorandum of intent and understanding dated Octo-
ber 29, 1969, which incorporated the agreements negotiated,
was executed by Mr. Gibbons, the strike leaders, and the
commissioners of the Authority. It showed that the Author-
ity's previous board of commissioners had resigned and that
on October 28, 1969, the Mayor of St. Louis appointed the
new commissioners, who had been recommended by the Alliance.
The memorandum included a reduced schedule of rents and pro-
vided for the formation of a tenant affairs board, consist-
ing of a tenant representative from each of the Authority's
low-rent housing projects, to promote tenant participation
in the management of the public housing. Other provisions
of the memorandum were as follows:

     1. The Authority would enter into a management contract
        with the Alliance for the administration, management,
        and improvement of the physical environment of the
        housing projects.

    2. Two members of the Authority's board of commission-
       ers would henceforth be tenants.

    3. All withheld rents in custody of strike leaders
       would be returned to the tenants for payment to the
       Authority.

    4. For tenants who had resided in conventional public
       housing since February 1, 1969, when the rent strike
       began, rent credits would be given, represented by
       the difference between rent paid under the present
       rent schedule (effective October 1, 1968) and the
       preceding rent schedule.

    5. The Authority would drop the more than 500 lawsuits
       filed against the tenants during the rent strike
       and would assume all court costs.

    6. All tenants who were in arrears in their rent pay-
       ments would be allowed to pay the arrearages over a
       2-year period.

    7. After determination of the amount due from each ten-
       ant, a committee on withheld rents, appointed by the
       rent strike chairman of each project, would

                             6
       determine the hardship cases and work out repayment
       schedules for each tenant.

     8. The Authority would provide necessary office space,
        equipment, and materials for the tenant affairs
        board and its operations.

     9. Training would be provided to the tenants of one or
        more of the projects which would result in the estab-
        lishment of a tenant management corporation, or cor-
        porations, to assume all administrative and finan-
        cial responsibilities of the projects.

     The Alliance's operating guidelines dated November 10,
1969, showed that the aim of the Alliance was to find solu-
tions to the problems facing the Authority through organi-
zation and technical investigation, including direct super-
vision of the Authority. The Alliance established 21 com-
mittees to review various areas of the Authority's opera-
tions. Teamsters representatives were assigned as techni-
cians to nine of the committees and as advisors or resource
persons to five of ,the committees. The president of the
Alliance (Mr. Gibbons), the executive assistant to the pres-
ident (Mr. Arthur E. Klein), and the acting director of the
Alliance (Mr. Terence K. McCormack) were Teamsters officials.

     The initial year's operating budget of the Alliance was
$350,000 for which funds were to be solicited from the com-
munity. Its headquarters was in rented space in the Team-
sters Council Plaza in St. Louis.




                              7
                         CHAPTER 2

   ARRANGEMENTS BETWEEN THE ST. LOU:IS HOUSING AUTHORITY

   AND THE CIVIC ALLIANCE FOR HOUSING FOR THE MANAGEMENT

               OF PUBLIC HOUSING IN ST. LOUIS

      -The Authority-..has no contract with the Alliance for the
Alliance':s management.of public housing in St. Louis. Al-
though a contract for the Alliance to manage the Authority's
housing projects was agreed to in the October 1969 settle-
ment'of the rent strike, Alliance officials informed us that
the idea had been abandoned because of legal obstacles to
such a contract. A HUD attorney advised us that such a con-
tract could involve conflicts of interest since certain
Alliance officials are developers of, or consultants to de-
velopers of, turnkey housing projects for the Authority.
Turnkey projects.are housing projects constructed by a pri-
vate developer on its own site for subsequent purchase by a
local housing authority.

     Members of -the Authority's new board of commissioners
(hereinafter referred to as the Board) and officials of the
Alliance advised us that the Alliance was functioning only
in an advisory capacity. Our review showed, however, that
Alliance officials had attended both open and closed meet-
ings of;the Boardand that the Board had adopted all the
Alliance's recommendations of record. No minutes have been
kept of closed meetings since February 1970.

      In addition, the Authority's records showed that there
had been extensive Alliance involvement in housing opera-
tions and that each member of the new Board had signed an
undated letter of resignation and submitted it to the Alli-
ance.

STATUS OF THE PROPOSED
MANAGEMENT CONTRACT

     On April 15, 1970, the Alliance issued a report on the
management of its public housing activities. The report
stated that the proposed contract for the management of pub-
lic housing in St. Louis was not sufficiently finalized for

                              8
submission to HUD for approval as unforeseen problems and
exigencies had arisen requiring changes.

     On June 22, 1970, we met with Messrs. Arthur E. klein
and Tereice K. McCormack, Alliance executives, to discuss
Alliance activities and the status of the proposed manage-
ment contract. They stated that the Alliance was no longer
interested in obtaining a management contract and that the
idea had been abandoned. They said that the management idea
was a philosophical concept which was discussed when the Al-
liance was being formed but that it was later discovered that
there were many legal problems to such an arrangement.

     The commissioners of the Authority informed us that
they were not aware that the Alliance no longer anticipated
the obtaining of a management contract. They stated that
the Authority and the Alliance were working from day to day
as though there were a formal contract and that they under-
stood the Alliance attorneys were in the process of writing
such a contract. They said that, in their opinion, there
must be a written agreement to define the roles of all par-
ties involved in St. Louis public housing.

     An Assistant Counsel for HUD advised us that HUD proba-
bly would not approve a contract with the Alliance for the
management of public housing in St. Louis since Alliance
members were involved as turnkey housing developers for the
Authority. He said that HUD had no legal basis for ruling
on a possible conflict of interest under the current ar-
rangement, since it would be difficult to establish that
the Alliance controlled the Authority, but that a conflict
of interest would exist through Alliance participation in
turnkey projects if the Alliance did in fact control the
Authority.




                             9
ALLIANCE INVOLVEMENT
IN HOUSING OPERATIONS

     The initial meeting of the new board of commissioners
of the Authority was held on November 2, 1969. The Board
agreed that the Authority would enter into an agreement
with'the Alliance for the management; of public housing
projects in St. Louis. At this meeting Messrs. Arthur E.
Klein-and Terence K. McCormack, Alliance executives, were
retained for a period of a year as dollar-a-year consultants
to the'Board. Mr. Klein had informed the Board that he and
Mr. McCormack were consultants to developers of three turn-
key housing projects of the Authority.

     In a second meeting on November 12, 1969, the Board ap-
proved the guidelines for the operation of the Alliance.
Board'actions in this meeting and in subsequent meetings
show extensive Alliance involvement in housing operations as
follows:

      1. The Board authorized Messrs. Klein and McCormack
         to prepare and execute letters of authorization
         which would permit Alliance officials to review
         Authority records and documents, to meet and inter-
         view its staff, and to have access to all its hous-
         ing projects.

     2. The Board authorized Mr. Klein to reorganize the
        Authority's office and field staffs, to designate
        and assign certain of the Authority's staff to new
        positions and' responsibilities, and to deal di-
        rectly with the Authority's employees in implement-
        ing revised methods and procedures.

     3. The Board authorized Mr. Klein to institute a pur-
        chase order system providing that no material or
        obligation for outside maintenance services could
        be incurred by anyone except those designated in
        advance by Mr. Klein.

     4. The Board questioned the legal relationship between
        the Alliance and the Board and questioned whether
        the Board could legally authorize the Alliance
        staff to implement decisions before a contract for

                            10
  management of public housing in St. Louis had been
  entered into by the Alliance and the Board. In a
  letter dated December 24, 1969, an Alliance attor-
  ney stated that he had prepared a tentative draft
  of a management contract which had been submitted
  to the rent strikers' attorney and to Mr. Klein for
  review. The attorney stated that he considered
  such a contract to be legal in all respects if en-
  tered into by the Board. The Board accepted the
  letter as legal advice providing firm ground for
  proceeding with authorizing the Alliance to execute
  its program for management of the Authority's hous-
  ing projects as outlined and approved by Alliance
  directors.

5. The Board approved all the Alliance task force com-
   mittees' reports that were approved previously by
   the Alliance's executive committee and board of
   directors and authorized the Alliance to proceed on
   the recommendations contained therein.

6. Mr. Klein presented to the Board a list of the Au-
   thority's employees to be terminated. The list
   had been previously submitted to and approved by
   the Alliance directors. The Board unanimously ac-
   cepted the recommended list of terminations.  (See
   chapter 5.)

7. Mr. McCormack reported to the Board that a tenant
   affairs team had been formed and that Mr. Jim Pace,
   a Teamsters official, had been assigned to coordi-
   nate all existing tenant committees. The Board au-
   thorized Mr. McCormack, working with the team, to
   proceed with a program for modernizing the Author-
   ity's housing projects where practical.

8. Mr. McCormack presented to the Board a letter that
   he had drafted to the HUD regional office at Fort
   Worth, Texas, enumerating the specifics of the mod-
   ernization program, along with a copy of the operat-
   ing budget for the Authority. He told the Board
   that he was going to the HUD regional office and
   wanted to take along the letter, the budget, and
   other data. The Board approved his request.

                       11
 9. All meetings held by the new Board through Febru-
    ary 10, 1970, had been closed meetings and were
    conducted at the Alliance headquarters with vari-
    ous Alliance representatives in attendance. Dis-
    cussions by the'Board on February 3, 1970, included
    suggestions that in the future the Board would con-
    duct a closed special or executive meeting first
    for ticklish subjects and then have an open meet-
    ing'. Certain items would be left off the agenda
    for the open meeting and held over for the next ex-
    ecutive session. The Board decided on February 10,
    1970, that closed meetings would be held on alter-
    nate weeks at the Alliance headquarters where
    Messrs. Klein and McCormack would be available and
    that no minutes would be kept of the closed meet-
    ings.

10.' On February '10, 1970, the Board members discussed
     their undated resignation letters signed at the
     time of their appointments and requested clarifica-
     tion of the conditions under which the letters
     could be effected. The Authority's attorney sug-
     gested that the letters be considered as agreements
   'to'cooperate rather than resignations. Mr. Klein
    'reminded the Board that, under the terms and con-
     ditions of the rent strike settlement,, the commis-
     sioners had given their undated letters of resigna-
     tion to the Alliance to be used only at the direc-
     tion of the Alliance's board of directors after
     consultation with the tenant affairs board.

11. On April 7, 1970, the Board accepted the resigna-
    tions of Messrs. Klein and McCormack as Board con-
    sultants. The resignations were offered after the
    HUD regional office ruled on February 27, 1970,
    that their participation as both consultants to
    the Board and to developers of turnkey housing
    projects for the Authority was a violation of the
    conflict-of-interest provisions of Missouri State
    law.




                       12
COMMISSIONERS' UNDATED
LETTERS OF RESIGNATION

     We discussed the undated letters of resignation signed
by the members of the Board with Alliance executives, the
commissioners, and HUD officials. None of these people ex-
pressed concern that the letters gave the Alliance undue
influence in the management of the Authority.

     The Alliance executives said the letters were required

     -- to ensure that the commissioners would comply with
       the terms of the strike settlement agreement,

     -- as a protection to the community since the commis-
       sioners were untried and could improperly administer
       the Authoriy, and

     -- to prevent the commissioners from dispensing with
       the services of the Alliance and the tenant affairs
       board.

     The Alliance executives stated that the Alliance acts
only in an advisory capacity, makes no decisions for the
Authority, and that the Board can accept, reject, or modify
Alliance suggestions. They said that the closed meetings
with the Board are educational sessions held for the pur-
pose of better informing and preparing the members of the
Board for their duties and that no official decisions are
made during these meetings.

     The commissioners said that they did not object to the
Alliance having the resignation letters and that they
viewed the administration of the Authority as a team effort
with responsibility shared by the commissioners, the Alli-
ance, and the tenants. According to them, any commissioner
who impeded the harmony of the team should be removed.
They stated that Mr. Gibbons had assured them that the res-
ignation letters could only be exercised by the Alliance's
board of directors and the tenant affairs board, not by any
one individual.

     The commissioners told us that they were initially un-
der the impression that the Board would be a rubber-stamp

                             13
organization to approve the Alliance's activities but that
they were taking a far more active role in housing affairs
than originally contemplated. They said that the Alliance
participation was strictly on an advisory basis and that
the Alliance had not tried to dominate the Board.

     The HUD representatives stated that they had no offi-
cial knowledge that the Alliance held the commissioners'
undated letters of resignation. The HUD Acting Assistant
Regional Counsel for Housing Assistance said that there was
no law or HUD policy prohibiting such an arrangement and
that a commissioner technically remained in office, even if
he resigned during his appointed term,until a new commis-
sioner was appointed by the mayor of the city.

     Concerning the undated resignation letters submitted
by the commissioners upon their appointment to the Alliance,
we note that Missouri law provides that city housing author-
ity commissioners can be appointed and removed only by the
mayor of the city. The law provides further that the mayor
can remove a commissioner for reasons of inefficiency, ne-
glect of duty, or misconduct in office after charges
against the commissioner have been presented in a hearing.
In light of all the facts and circumstances, there could be
some question as to whether such resignations would be
binding-if dated and accepted by the mayor, and the commis-
sioner involved objected to such acceptance and demanded a
hearing. The commissioners informed us, however, that they
felt that any commissioner who impeded the harmony of the
team should be removed.

     Representatives of the HUD regional office advised us
that they were familiar with the Alliance's operating
guidelines but did not know the extent of authority actu-
ally vested in the Alliance. They said that the HUD re-
gional office considered the Authority's board of commis-
sioners to be the official body operating St. Louis public
housing and that the Alliance involvement was acceptable
in an advisory capacity only. They informed us that the
regional office had conducted no official business with the
Alliance and that they had told Alliance officials that HUD
would deal only with official Board-approved matters.



                            14
                        CHAPTER 3

            COMPLIANCE WITH HUD REGULATIONS ON

              POSSIBLE CONFLICTS OF INTEREST

           REGARDING TURNKEY HOUSING PROPOSALS

     The Alliance was not involved in the selection of de-
velopers for the Authority's 25 turnkey housing projects
since the developers were selected before the Alliance was
formed. Developers and/or developer consultants for six of
these projects, however, later became Alliance members and
executives. We noted at the time of our review that the
final price had not been negotiated for five of these six
projects. HUD regulations regarding conflict of interest
in these turnkey projects apply only to officers and employ-
ees of the Authority.

      HUD regulations regarding turnkey housing projects out-
line specific steps to be followed by a local housing au-
thority in establishing a turnkey project. The process is
initiated by advertising in newspapers and other news media
for proposals by developers. The regulations require that
the advertisement provide a general description of the proj-
ect, including the number of units and rooms, type of hous-
ing, and the type of location desired. After a developer is
selected through evaluation of the proposals by the housing
authority and HUD, the project progresses through 11 addi-
tional steps leading to the start of construction. These
steps include obtaining independent appraisals of the value
of the land and estimates of the construction costs, conduct-
ing price negotiations, and executing (with HUD approval) a
contract between the local housing authority and the devel-
oper.

     The regulations require that two independent land ap-
praisals and two independent construction cost estimates be
obtained by the housing authority and be used in the evalua-
tion of a developer's proposal. If there is no substantial
variance (10 percent or more) in the two land appraisals,
HUD may establish as the maximum price the average of the
two land appraisals. Construction costs must not be greater


                             15
than the midpoint of the two independent cost estimates.
HUD may require additional cost estimates to permit a valid
determination of cost "*** whenever there is a difference
between the first two cost estimates so substantial or dif-
ficult of reconciliation ***". If the developer's proposed
price is substantially above the midpoint of the two ap-
proved cost estimates, the authority is required to advise
the developer to reduce his price or withdraw.

     The HUD Low-Rent Housing Manual, section on turnkey
housing, provides a sample contract to be used by local hous-
ing authorities.  It contains the following conflict-of-
interest provisions:

     "No member, officer, or employee of the Purchaser
     during his tenure or for one year thereafter shall
     have any interest, direct or indirect, in this
     Agreement or the proceeds thereof."

     The annual contributions contract executed between HUD
and a local housing authority under which HUD contributes
to the cost of development of housing projects, includes
similar conflict-of-interest provisions. The annual con-
tributions contract provides that, if any present or former
member, officer, or employee of a local housing authority
acquires or had acquired, prior to the beginning of his
tenure, any interest in a project of the authority and if
the interest is immediately disclosed to the authority, the
authority may waive the conflict-of-interest prohibition.
The member, officer, or employee, however, may not partici-
pate in any action by the authority relating to his interest.

SELECTION OF TURNKEY DEVELOPERS

     HUD, as of May 13, 1970, had allocated 3,444 turnkey
housing units to the Authority, which accepted 25 proposals
from developers for the construction of 2,997 units. HUD's
files for each of the 25 projects showed that the proposals
had been accepted by the Authority before October 1969 when
the Alliance was formed. The HUD Fort Worth Regional Of-
fice approved 18 of these proposals for construction of
1,809 units.



                            16
INVOLVEMENT OF ALLIANCE MEMBERS
AND EXECUTIVES IN TURNKEY PROJECTS

     The Authority's records show that four members and ex-
ecutives of the Alliance were involved in six of the turnkey
projects to the extent indicated below.

Project MO 1-10 (James House--155 units for the elderly)

     This project was initiated on June 12, 1967, when the
minister of the St. James A. M. E. Church sent a letter to
the executive director of the Authority stating that the
church desired to initiate and manage a turnkey project for
the elderly. On the same date, the Reliance Construction
Company submitted a proposal for construction of the project
as a joint venture with the church. The proposal was sub-
mitted through Mr. Arthur E. Klein, a consultant, who in
October 1969 became executive assistant to the president of
the Alliance. The Authority forwarded the proposal to the
HUD Fort Worth Regional Office, which approved it on Octo-
ber 13, 1967.

     The Reliance initial proposal was for 150 units. On
November 20, 1967, Mr. Klein, on behalf of Reliance, sub-
mitted an alternate proposal for 155 units estimated to cost
$2,620,065, including land. This amount was below two in-
dependent construction estimates of $2,702,386 and
$2,716,906, net of actual land cost of $118,839. The alter-
nate proposal of Reliance was approved by HUD prior to the
formation of the Alliance. On June 30, 1969, however, Re-
liance relinquished all rights as developer to the St. James
A. M. E. Church and remained only as the general contractor
for the project. On July 1, 1969, the Authority awarded a
contract to St. James A. M. E. Church in the amount of
$2,620,065 for the construction of 155 housing units.

Project MO 1-19 (397 units for the elderly)

     In a letter dated December 13, 1967, Mr. Arthur E.
Klein, acting for Jack Dubinsky and Sons and H. B. Deal Con-
struction Company, a joint venture, submitted a proposal to
the Authority for the construction of 398 housing units for
the elderly at a unit cost of $16,950. The proposal was ap-
proved by HUD on September 26, 1968. On April 25, 1969,

                             17
Mr. Klein submitted a revised proposal for the construction
of the project at a total cost of $6,868,100 for 397 units,
or a unit price of $17,300. The proposal showed that the
increase of $350 in the unit price was caused by inflation,
higher interest rates, and the inclusion of air conditioning
in the project.

     The revised proposal cost of $6,868,100 included
$549,895 for the land and $6,318,205 for construction. The
two independent land appraisals for the project were only
$472,500 and $485,000. By letter dated June 3, 1969, the
HUD regional office advised the Authority that the maximum
land value that would be approved for the project was
$478,750, the average of the two independent appraisals.
In a negotiation conference held at the HUD regional office
on July 1, 1969, however, the maximum price for the land
was set at $509,000. The minutes of the negotiation con-
ference do not show why the maximum price for the land was
set higher than the average of the two independent apprais-
als. A HUD representative who attended the conference
told us that he could not recall the reason for the differ-
ence. This action was taken prior to the formation of the
Alliance.

     The two independent construction cost estimates ob-
tained by the Authority were $5,760,440 and $5,584,434
which were considerably lower than the developer's proposed
cost of $6,318,205. In August 1969, both estimators reaf-
firmed their estimates. On August 29, 1969, the Authority
forwarded these estimates to the HUD regional office, stated
that the Authority disagreed with the independent estimates,
and requested that the developer's proposed construction
costs be included in a letter of intent until the estimates
could be updated on the basis of final drawings. The Au-
thority's letter stated that the proposed price, which in-
cluded air conditioning, was below the price of other proj-
ects without air conditioning.

     We were informed by Authority representatives that the
HUD regional office agreed that the independent estimates
were understated and suggested that additional estimates be
secured at the developer's expense. Two additional indepen-
dent estimates dated April 18 and 20, 1970, in the amounts
of $5,594,961 and $5,541,026, were still substantially lower

                             18
than the developer's proposed cost. On May 18, 1970, the
developer again requested HUD's regional office to consent
to have its proposed cost incorporated into a letter of in-
tent on the basis that estimates based on final drawings
would substantiate the proposed cost. Authority personnel
stated that the HUD regional office had advised the developer
to prepare its plans in detail and have the Authority se-
cure additional cost estimates at the developer's expense.

     The developer forwarded to the Authority updated draw-
ings for the project and agreed to pay for the additional
cost estimates. The third set of independent estimates
dated June 26 and July 2, 1970, in the amounts of $6,261,378
and $7,718,853, were an average of about $672,000 higher
than the developer's proposed cost of $6,318,205. On
July 10, 1970, the Authority forwarded these estimates to
the HUD regional office along with a summary of the project
history and requested HUD to decide what further steps
should be taken on the project. As of July 31, 1970, HUD
had not replied to the Authority's request.

Project MO 1-20 (201 units for the elderly)

     The initial proposal for the project was submitted to
the Authority by Mr. Arthur E. Klein, consultant to the de-
veloper--the Council Plaza Redevelopment Corporation--on
February 27, 1968. The proposal was for the construction
of 121 units at a cost of $2,057,000, or $17,000 a unit.
On September 25, 1968, the Authority notified the developer
that it had approved the project. On October 31, 1968,
Mr. Klein submitted a revised proposal for 200 units at a
cost of $3,400,000, or $17,000 a unit. Under this revised
proposal, all individual apartment kitchens were eliminated
and replaced with a central dining facility to permit an in-
crease in the number of units.

     In a letter dated October 27, 1969, Mr. Terence K.
McCormack, on behalf of the developer, submitted a third
proposal for 201 units at a cost of $3,517,500, or
$17,500 a unit, including $175,000 for the land.
Mr. McCormack, a Teamsters official, was also the acting
director of the Alliance. The letter stated that the in-
creased cost had been caused by the inclusion of kitchen
equipment, increased financing costs, and an anticipated in-
crease in the cost of labor and materials.
                             19
     The developer of this project--Council Plaza Redevelop-
ment Corporation--submitted a developer's statement of dis-
closure of interest to the St. Louis Land Clearance Author-
ity. The statement showed that the corporation was owned
by various Teamsters Union locals. Mr. Harold J. Gibbons,
president of the Teamsters Joint Council No. 13, who later
became president of the Alliance, was president of the cor-
poration.

     On December 8, 1969, a negotiation conference was held
for this project. The minutes of the conference showed that
a cost for the project could not be negotiated because the
land appraisals and construction cost estimates had not been
received but that HUD appeared to consider the developer's
cost of $3,517,500 to be acceptable. The land appraisals
and the construction estimates received after the conference
are compared with the developer's October 27, 1969, pro-
posal below.

                                   Land     Construction

  Developer's proposal of
    October 27, 1969             $175,000    $3,342,500
  Appraisal 1                     100,500
  Appraisal 2                     173,000
  Cost estimate 1                            3,096,000
  Cost estimate 2                            3,434,027

     As of April 27, 1970, a cost had not been negotiated
for this project.

Project MO 1-24 (29 units for general occupancy
and 96 units for the elderly)

     The initial proposal for this project was submitted to
the Authority by the developer on June 24, 1968, for the
construction of 104 units at a cost of $1,819,888. The de-
veloper's statement of disclosure of interest showed that
the developer was a partnership composed of Mr. James E.
Hurt, Jr. and R. Jerome Williams, M.D., each owning a 50-
percent interest. On December 6, 1968, the HUD regional of-
fice approved the proposed project.



                            20
      In September 1969, the developer submitted a revised
proposal for 125 units at a cost of $2,275,700.
Dr. Williams became a member of the Alliance in October
1969.

     On April 13, 1970, the developer advised the Authority
that, because of the lapse of time since the proposal was
submitted, the cost estimates would have to be revised. On
July 9, 1970, the developer submitted a revised cost esti-
mate of $2,371,050. A cost for the project had not been
negotiated as of September 16, 1970, because independent
construction cost estimates had not been received. On
July 2, 1970, however, the HUD regional office and the de-
veloper arrived at a negotiated cost of $110,000 for the
land which is comparable to the average of the independent
land appraisals of $98,500 and $125,000.

Project MO 1-26 (24 units for general occupancy)

     Initially this project was to consist of 20 units lo-
cated on land owned by the St. Louis Land Clearance Author-
ity. In September 1968, five developers responded to the
St. Louis Housing Authority's request for proposals for the
construction of the project. After reviewing the proposals,
the Authority's housing development section considered
three of the proposals to be acceptable, those of Harold
Garner and Associates; Vanguard Bond and Mortgage Co., Inc.;
and Reliance Construction Company but preferred the proposal
submitted by Harold Garner and Associates. In a joint meet-
ing of the St. Louis Housing Authority and the St. Louis
Land Clearance Authority on October 10, 1968, however, the
proposal of the Reliance Construction Company was selected
for recommendation to the housing authority's board of com-
missioners for approval. On November 4, 1968, the Author-
ity's executive director notified the board of commissioners
that the Authority's staff recommended that the Reliance
proposal be accepted.

     On November 19, 1968, however, the Authority notified
Vanguard Bond and Mortgage Co., Inc., that its proposal had
been approved by the board of commissioners during a Novem-
ber 18, 1968, meeting. Vanguard proposed the construction
of the project at a cost of $359,540 or $17,977 a unit.
Neither the Authority's files nor the minutes of the

                             21
meeting indicated the basis for the approval of Vanguard's
proposal. An Authority official advised us that the former
Board, which was replaced in October 1969, did not advise
the staff as to its reasons for selection of the Vanguard
proposal.

     The developer's statement of disclosure of interest
showed that the president of Vanguard was Dr. Jerome
Williams, who became a member of the Alliance in October
1969. In March 1969, the developer submitted a revised pro-
posal for construction of 24 units at a total estimated
cost of $451,293 or $18,804 a unit. HUD approved the project
on May 8, 1969.

     The Authority's files showed that a feasibility con-
ference was held at the HUD Fort Worth Regional Office on
April 10, 1970, and that a land price of $19,300, estab-
lished by the St. Louis Land Clearance Authority as owner
of the land, was accepted by HUD.

Project MO 1-27 (33 units for general occupancy)

     By a letter dated January 24, 1969, Mr. Terence
McCormack, consultant to the Reliance Construction Company,
submitted a proposal to the Authority for the construction
of 33 units at a cost of $602,250. On May 8, 1969, the HUD
regional office approved the proposed project.

     On May 1, 1970, the developer notified the Authority
that a citizens' organization in the construction area ob-
jected to the proposed project and that it had no further
interest in developing the project. An Authority official
told us that the community objected to the project because
the developer was Caucasian and the community feared that
whites might live in the project. As of June 30, 1970, the
Authority had not notified HUD that the developer was no
longer interested in the project.



     The chairman of the board of commissioners advised us
in a letter dated July 17, 1970, that the Board had discussed
with Authority officials the involvement of Messrs. Klein
and McCormack, Alliance executives, in the turnkey projects.

                            22
The letter stated that Authority staff members had assured
the Board that Mr. Klein, Mr. McCormack, and other members
of the Alliance had not gained any privileged information
from the Authority's files pertaining to turnkey projects
and that the Board had found no instances where Alliance
members had received any consideration above or beyond the
scope of turnkey regulations as they are known to the Au-
thority. The letter stated also that the director of devel-
opment had assured the Board that neither Mr. Klein nor
Mr. McCormack had exerted any influence or pressure to fur-
ther their particular turnkey projects and had initiated no
other turnkey projects after their involvement with the Al-
liance.




                            23
TURNKEY DEVELOPER CONSULTANTS ALSO SERVING
AS CONSULTANTS TO BOARD OF COMMISSIONERS

     As previously stated, the new board of commissioners,
during its initial meeting on November 2, 1969, appointed
Messrs. Klein and McCormack, Alliance executives, to act as
consultants to the Board for an annual remuneration of a
dollar. Mr. Klein advised the Board that he and
Mr. McCormack would accept the positions only if the Board
was fully advised of their participation in turnkey projects
of the Authority. The final price for two of the projects
had not been negotiated at that time. The Board unanimously
resolved that Messrs. Klein and McCormack be retained as
consultants for a period of a year without prejudice to
their continued consulting on the three projects.
Messrs. Klein and McCormack agreed that they would not ac-
cept any other private clients whose projects would be af-
fected by actions of the Authority.

     The Authority's chief attorney in a letter dated Feb-
ruary 18, 1970, advised the HUD regional office of these
appointments and stated that HUD auditors had indicated the
appointments involved a conflict of interest under the pro-
visions of the annual contributions contract. The chief
attorney requested HUD to determine whether a conflict of
interest was involved and, if so, to provide a waiver of
the contract provisions so that Messrs. Klein and McCormack
could continue as Board consultants.

     In a letter dated February 27, 1970, the HUD Assistant
Regional Administrator for Housing Assistance advised the
Authority that, as consultants of the Authority,
Messrso Klein and McCormack were prohibited by Missouri law
from serving as developer consultants for the turnkey proj-
ects and that HUD could not waive the contract provisions
to permit them to serve as consultants to both the Authority
and the turnkey developers. The letter stated that such a
waiver would set a precedent for actions detrimental to the
public interest over which HUD would have no control and
would not measure up to the standard of conduct which is ex-
pected, required, and considered appropriate for housing
authority officials and employees.



                             24
     Messrs. Klein and McCormack tendered their resignations
as Board consultants and the Board accepted them during a
meeting on April 7, 1970. No significant actions were taken
by the Board on the Authority's turnkey projects during the
tenure of Messrs. Klein and McCormack as Board consultants.




                            25
                          CHAPTER 4

                PUBLIC HOUSING TENANTS ON THE

           AUTHORITY'S BOARD OF COMMISSIONERS AND

                  THE STATUS OF THEIR RENTS

     The board of commissioners of the Authority included
two members who were tenants in the Authority's low-rent
housing projects. These tenants were appointed as commis-
sioners about 2 months after the attorney general of Mis-
souri had expressed the opinion that tenants of low-rent
housing projects are not eligible to be appointed as commis-
sioners of a local housing authority created under provi-
sions of Missouri law. We were informed by the board of
commissioners of the Authority that the attorney general's
opinion did not have the effect of law and the legality of
this action would have to be decided by the courts. HUD
was aware of the State attorney general's opinion and did
not object to, nor did its regulations forbid, the appoint-
ment of the tenants to the Authority's board of commission-
ers.

     The Authority lowered the rental rate of $37 a month
charged to one of these tenants to the minimum monthly
rental of $20 after his appointment as a commissioner. The
rental rate of $37 had been established on the basis of the
Authority's estimate of the tenant's annual income but was
reduced on the basis of the tenant's statements that he had
no annual income. 1 The other tenant's rental was based on
her income which was supported by documentary evidence and
was not reduced by the Authority after she was appointed as
a commissioner.


1 Income
       as defined by the Authority is not confined to earn-
ings.  It includes income from all sources, e.g., with-
drawal from savings, welfare grants, and the subsistence
portion of scholarships.




                             26
INCLUSION OF TWO TENANTS ON THE
AUTHORITY'S BOARD OF COMMISSIONERS

     One of the conditions presented by the rent strike
leaders for ending the rent strike was the appointment of a
new board of commissioners. Another condition required that
two members of the Board would henceforth be tenants of pub-
lic housing if such membership would not be held to be un-
lawful by any court of competent jurisdiction.

     On October 28, 1969, the Mayor of St. Louis appointed
the following members to the Authority's new board of com-
missioners.

     1.   Mrs. Thelma Green--tenant
     2.   Mr. Clarence Swarm--tenant
     3.   Rev. Donald Register
     4.   Rev. Carl Dudley
     5.   Mr. Frank Boykin

     Missouri State law provisions relative to the eligi-
bility and qualification for housing authority commissioners
are included in sections 99.050 and 99.060 of the "Revised
Statutes of the State of Missouri, 1959." The law states,
in part, as follows:

     Section 99.050--"the mayor shall appoint five per-
     sons who shall be taxpayers who have resided in
     said city for five years prior to such appoint-
     ment as commissioners of the authority created for
     said city ***.    No commissioner of an authority
     may be an officer or employee of the city or
     county for which the authority is created ***."

     Section 99.060--"No commissioner or employee
     of an authority shall acquire any interest di-
     rect or indirect in any housing project ***.
     If any commissioner or employee of an authority
     owns or controls an interest direct or indirect
     in any property included or planned to be in-
     cluded in any housing project, he immediately
     shall disclose the same in writing to the au-
     thority and such disclosure shall be entered


                              27
     upon the minutes of the authority. Failure so to
     disclose such interest shall constitute misconduct
     in office. Upon such disclosure such commissioner
     or employee shall not participate in any action by
     the authority affecting such property."

     On March 6, 1969, the final day for introduction of new
legislation in the 75th General Assembly of the State of
Missouri (1969), a bill was introduced that would specifi-
cally allow the appointment of public housing tenants as
housing authority commissioners. The bill was not acted
upon by the legislature.

     On August 11, 1969, the attorney general   of the State
of Missouri issued an opinion, in response to   a request from
a Missouri State senator, on whether a tenant   of a housing
authority created under Missouri law could be   one of the
commissioners of the authority. The attorney    general re-
plied to the request as follows:

    "Section 99.060, may be summarized as prohibiting
    a commissioner from exercising his authority and
    judgment on any matter in which he has an interest
    in the housing project. As a tenant, his inter-
    est would encompass the entire operation of the
    project from the amount of rent to the state of
    repair and sanitation. We see no area, as a prac-
    tical matter, where the tenant does not have an
    interest in the housing project.

    We believe that the phrase 'interest direct or in-
    direct in any housing project' applies to the re-
    lationship a commissioner has which would affect
    his official actions because of his determination
    of matters affecting himself as a tenant and is
    not limited to contracts for services or materi-
    als to be furnished by him or his interest in
    property of the project. Section 99.060, spe-
    cifically prohibits a commissioner having any in-
    terest in any project property or project con-
    tract but goes further and prohibits his having
    any interest in a housing project. This 'inter-
    est' proscribed by the statutes demonstrates a


                             28
     legislative intent to prohibit a commissioner from
     having an interest in the project as a tenant
     which in turn could affect his actions as commis-
     sioner in any way."

     The attorney general's opinion concluded with the fol-
lowing statement.

     "It is the opinion of this office that a tenant is
     not eligible to be appointed to the office of com-
     missioner in a municipal housing project created
     under provisions of Chapter 99, RSMo1959."

     The board of commissioners of the Authority advised us
that the attorney general's opinion was merely one man's
opinion and did not have the effect of law. The commis-
sioners advised us that, in their opinion, tenant partici-
pation was necessary for public housing to succeed and, if
necessary, applicable laws should be changed.

     The HUD Acting Assistant Regional Counsel for Housing
Assistance, Fort Worth Regional Office, provided us with a
copy of the following legal opinion (No. 204 dated November
28, 1969) by the HUD General Counsel relative to the appoint-
ment of public housing tenants to serve as housing authority
commissioners.

     "*** Although this Department has not as yet es-
     tablished an official policy on this subject, I
     think it is fair to state that HUD has no objec-
     tion to, and indeed encourages, the appointment
     of tenants as housing authority commissioners to
     the extent it is permissible under applicable
     state and local law. Such appointments would
     seem beneficial to both the tenants and the hous-
     ing authority in that tenants would have a repre-
     sentative to voice their concerns in decisions
     affecting them and the authority would be given a
     direct conduit to ascertain tenant thinking on im-
     portant issues and to explain to the tenants the
     authority's reasoning in the actions it takes.




                            29
     "To date, no decided case on this question has
     been brought to our attention, although Opin-
     ions have been rendered by the Attorney General
     in California (finding such appointment to be
     permissible) and in Missouri (where the oppo-
     site holding was made while construing an al-
     most identical statute). I should add that at
     the present time tenants are serving on the
     housing authority boards in New Haven, Hartford,
     and Norwalk, Connecticut; Cambridge and Boston,
     Massachusetts; Catskill, New York; Muskegon
     Heights, Michigan; Chicago, Illinois; and Co-
     lumbia, Missouri. The last-mentioned appoint-
     ment, made approximately a year prior to the
     rent adverse Attorney General's Opinion, and
     the subsequent announcement that, as part of
     the settlement of the lengthy St. Louis rent
     strike, two tenants will be named to the city's
     housing authority, make it seem likely that the
     validity of the Opinion expressed by the Mis-
     souri Attorney General will be tested in court.

     "There is no general Federal government conflict
     of interest policy that would have applicability
     to this question of appointing tenants as commis-
     sioners. There is also no provision of Federal
     Housing law which would seem to bear on this issue.
     Some local officials, however, have felt that it
     is necessary to have the involved local housing
     authority waive, and HUD approve the waiver of,
     the conflict of interest provision (section 515)
     of the Annual Contributions Contract (ACC) be-
     tween the housing authority and HUD. (Section
     515 provides that the housing authority shall
     not enter into any contract, subcontract, or
     arrangement in which a member has direct or
     indirect interest).  It is this Department's
     position that we will readily waive section
     515 in cases in which local officials think
     that such action is necessary."

     The Acting Assistant Regional Counsel informed us that
HUD headquarters was well aware that tenants had been


                            30
appointed to the Authority's board of commissioners and
that it had voiced no objections. He stated that, as indi-
cated by the HUD General Counsel's opinion, there is no gen-
eral Federal Government conflict-of-interest policy that
would have applicability to this question of appointing ten-
ants as commissioners and that there is no provision of the
Federal housing law which bears on this issue.

     Section 515 of the annual contributions contract be-
tween HUD and the Authority provides that the Authority
not enter into any contract, subcontract, or arrangement in
which a member has a direct or indirect interest. The HUD
Acting Assistant Regional Counsel in June 1970 advised us
that the Authority had not requested HUD approval of a
waiver of section 515 but that,if such a request had been
made, the waiver would undoubtedly have been approved in ac-
cordance with the HUD General Counsel's opinion.

     Public Law 91-609, however, dated December 31, 1970,
amended section 1 of the Housing Act of 1937 by adding:

     "It is the sense of the Congress that no person
     should be barred from serving on the board of
     directors or similar governing body of a local
     public housing agency because of his tenancy in
     a low-rent housing project."




                             31
RENT STATUS AND INCOME
ELIGIBILITY OF
TENANT-COMMISSIONERS

     The Authority's records revealed the following infor-
mation relative to the rent status and income eligibility
of the two public housing tenants on the Authority's board
of commissioners.

Mr. Clarence Swarm

     Mr. Swarm and his wife have been residents of the Coch-
ran low-rent housing project since November 18, 1960. Ac-
cording to information in the Authority's records Mr. Swarm
has not provided documentation of his income as required by
Authority regulations since his initial occupancy of the
project. According to his "application for admission," his
annual income from self-employment was shown as $2,000. The
Authority accepted, as evidence of his income, a statement
from a local minister that Mr. Swarm and his wife lived on
a yearly budget of $2,000.

     In the first reexamination for continued occupancy--and
to establish a rental rate in January 1962--and in subse-
quent reexaminations through 1966, the Authority was unable
to obtain documentation of the Swarm's annual income in ac-
cordance with its established procedures. Mr. Swarm re-
peatedly advised Authority officials that he was self-
employed and could not furnish documentation to support his
income but signed statements that were generally identical
to the following one.

    "I, Clarence L. Swarm, hereby state I supplement
    my expenses such as Rent, Food, etc., from the
    sale of Personal Property, Equipment, Items (In-
    ventory), which I owned before I moved into the
    Project. I do not file Income Tax return. The
    above statement is true and complete to the best
    of my knowledge. I fully understand any false
    statement given by me can result in the cancel-
    lation of my exiting lease."

     In each instance, the Authority arbitrarily established
the Swarms' annual income at $1,820. An Authority official


                            32
advised us that the $1,820 was the standard figure used by
the Authority as the annual income of self-employed persons
when required documentation of annual income could not be
furnished. He stated also that the $1,820 was less than
the maximum income limit for continued occupancy and was
below the maximum income for the minimum monthly rental
rate. He advised us further that the Swarms had been
charged minimum rental rates for their unit since their ini-
tial occupancy in 1960.

     The Authority records.show that, during the period Jan-
uary 1962 through May 1968, the Authority tried various
means of determining the source and extent of the Swarms'
income, including contacting the welfare agency to deter-
mine if it had an application or registration on the Swarms,
but always with negative results.

     On April 15, 1968, Mr. Swarm refused to sign a new
lease because it showed the Swarms' annual income was
$1,820 as estimated by the Authority. At the time Mr. Swarm
stated his income for the year was zero.

     The Authority omitted the amount ($1,820) of annual
income when it retyped the Swarms' lease dated May 21, 1968,
and Mr. Swarm signed the lease on June 12, 1968. The new
lease increased the Swarms' rental rate from $45 a month to
$50, which was the minimum rental rate charged by the Au-
thority at that time and which the Swarms continued to pay
monthly until February 1969 when the tenant rent strike
started.

     In accordance with the rent strike settlement agree-
ment of October 29, 1969, the Authority established a re-
duced rent schedule retroactive to October 1, 1969. Basi-
cally, this reduced rent schedule set the maximum annual
rentals at 25 percent of a tenants adjusted annual income
and established a minimum rental rate of $20 a month. On
November 13, 1969, the Authority adjusted the Swarms'
monthly rental rate from $50 to $37 in accordance with the
reduced rent schedule. In establishing the $37 rent rate,
however, the Authority again based it on an estimated an-
nual income of $1,820 which Mr. Swarm had previously pro-
tested. On November 21, 1969, Mr. Swarm again protested
the use of the $1,820 annual income determination and


                             33
insisted that he had no income. Therefore the Authority re-
duced the Swarms' monthly rent to $20 which was the minimum
rate on the new rent schedule and changed the records to
show Mr. Swarms' annual income as zero.

     The chief of the Authority's rental and occupancy sec-
tion informed us that the $1,820 estimated annual income
had not directly affected the rent charged the Swarms prior
to implementation of the reduced rent schedule in November
1969 but that the estimated $1,820 income did directly af-
fect the rental rate charged under the new rent schedule as
indicated above. She stated that, when Mr. Swarm com-
plained about the estimated $1,820 income on November 21,
1969, she could not say that Mr. Swarm should pay an addi-
tional $17 a month on the basis of her opinion alone, since
the Authority had no documentation to support that he had
any income. She indicated that she did not believe that
Mr. Swarm had "no income," since he and his wife rode public
transportation daily, they appeared to be well fed, and
they paid their rent. She stated that she re-set Mr. Swarm's
rent at $20 on the basis that to exist he must have had at
least an annual income of $1,007 which was the maximum in-
come allowable for the minimum rental rate of $20.

     On June 9, 1970, the Authority reviewed Mr. Swarm's
file to determine if his rent should be adjusted under the
provisions of section 213 of the Housing and Urban Develop-
ment Act of 1969. Under this law, a tenant with no income
would be entitled to free rent; however, the Authority did
not reduce Mr. Swarm's monthly rent. The chief of the
rental and occupancy section stated that there was no basis
for changing the rental rate and that, although the Author-
ity did not know the amount of Mr. Swarm's income, it had no
verification that his income was zero. This official stated
also that common sense and observation of Mr. Swarm's ap-
pearance indicated that he had some income and that, if he
actually had no income, he should have applied for welfare
and old age assistance, and such income, if received, would
result in a rental higher than the $20 rate currently
charged.

     Mr. Swarm paid no rent during the tenant strike, and
as of October 31, 1969, he owed back rents totaling $465.
As of June 10, 1970, Mr. Swarm had paid a rental of $20 for

                            34
each month since the end of the rent strike, and the amount
of the back rent owed had been reduced to $55 by rent cred-
its required by the strike settlement agreement and cash
payments made by Mr. Swarm. The rent credits granted to
Mr. Swarm at the end of the rent strike were reviewed by us
and found to be accurate and in accordance with the provi-
sions of the rent strike settlement agreement.

Mrs. Thelma Green

     Mrs. Green has been a resident of the Carr Square low-
rent housing project since March 2, 1943. Authority records
show Mrs. Green's income consists entirely of welfare pay-
ments and child-support payments. Mrs. Green provided doc-
umentation showing her annual income and the Authority veri-
fied it in accordance with the established procedures.

     The monthly rental charged to Mrs. Green from February
1969 through June 1969 was $60 in accordance with rent
schedules in effect at that time and from July 1969 through
November 1969 was $68 in accordance with revised rent
schedules based on income information obtained from
Mrs. Green in April 1969 during an annual reexamination of
her file for continued occupancy. This annual reexamination
showed that Mrs. Green's annual income at that time was
$1,392. In November 1969, Mrs. Green's rental rate was re-
duced, retroactive to October 1969, to $24 per month on the
basis of her annual income, verified in April 1969, in ac-
cordance with the revised rent schedule which was a condi-
tion of the rent strike settlement agreement.

     Mrs. Green paid no rent during the rent strike, and as
of October 31, 1969, she owed back rents totaling $581. Ac-
cording to Authority records, Mrs. Green has paid the rental
charge of $24 each month since the end of the rent strike
and her back rent has been reduced to zero by rent credits
required by the strike settlement agreement and cash pay-
ments made by Mrs. Green. The credits applied to the bal-
ance owed by Mrs. Green at the end of the rent strike were
reviewed by us and found to be accurate and computed in ac-
cordance with conditions of the rent strike settlement
agreement.




                            35
                         CHAPTER 5

                  DISMISSAL OF EMPLOYEES

     On February 6, 1970, the Authority notified 103 of its
employees that their services would be terminated as of
February 20, 1970. These dismissals were recommended by a
management consultant as part of a program designed to re-
duce costs and improve efficiency of the Authority. HUD
had no specific regulations regarding housing authority em-
ployment policies, but the 2-week termination notice was in
compliance with the Authority's personnel procedures. As
of April 20, 1970, 31 of the terminated employees had been
rehired by the Authority.

     The management consultant was not employed by the Au-
thority but had been hired by the Alliance as part of the
staff assigned to a task force committee for housing author-
ity staff review. This committee was established by the
Alliance to perform:

     "Complete evaluation of organizational structure
     of the Housing Authority regarding lines of au-
     thority, operational procedures and where respon-
     sibility begins and ends within the staff struc-
     ture...and to further evaluate the quality of
     persons involved in day-to-day tenant relation-
     ships and ascertain the competencies and social
     concerns of all personnel."

     Three Alliance members were assigned to the commit-
tee--a religious leader, a bank executive, and an educator.
The committee was assigned a staff composed of the manage-
ment consultant, a building maintenance specialist, a rep-
resentative of the tenant affairs board, and the Authority's
director of personnel.

     The management consultant submitted recommendations
for reducing the number of employees of the Authority in a
December 11, 1969, letter to the Alliance. The committee
endorsed the recommendations during a meeting on Decem-
ber 16, 1969, but only the chairman (the only member of the
committee present), a staff member, the acting director of
the Alliance, and the consultant were at the meeting. The

                            36
board of directors of the Alliance accepted the recommenda-
tions on December 22, 1969, and on February 3, 1970,
Mr. Arthur E. Klein presented the recommendations to the
Authority's board of commissioners which unanimously ac-
cepted them.

     The management consultant's letter of December 11,
1969, also contained a number of recommended organizational
and staff changes for the Authority. The letter showed that
the Authority's staffing included excessive layers of man-
agement and diffused lines of authority which resulted in
slow and poor decisions and excessive paper work. The con-
sultant recommended the (1) abolition of the housing and
social service divisions, (2) assignment of additional re-
sponsibilities to the project managers, (3) centralization
of the accounting, credit, and collections activities, (4)
elimination of maintenance specialists and the use, instead,
of general-purpose maintenance men, and (5) consolidation
of project management into five project groupings rather
than the then-existing nine separate project offices. The
consultant proposed also that the Authority's staff be re-
duced by 129 positions, including 61 office positions and 68
maintenance and custodial positions, at an estimated annual
savings of $902,000.

     The management consultant informed us that he had been
responsible for the final recommendations regarding the dis-
missal of the employees. He stated that he had been directed
by the Alliance to recommend changes which would reduce the
Authority's payroll as much as possible, hopefully, up to
$1.5 million a year and that Alliance executives had es-
pressed disappointment when his recommendations resulted in
a reduction of only $902,000. He said that the Alliance had
given him no instructions as to individual employees who
should be discharged or retained.

     The consultant informed us that he had determined the
number of positions to be eliminated by analysis of each
job, considering its physical and mental aspects and its
contribution to organization and planning. He provided no
documentation to indicate how he had selected individual
employees to be terminated or the positions to be eliminated.
During discussions with us, however, he made the following
statements relative to terminations in each area of opera-
tions. Administrative people were terminated generally

                             37
because their jobs were abolished. An exception was in the
legal section where analysis indicated that the work load
required only one attorney. For economic reasons, an attor-
ney with an annual salary of $10,462 was retained instead of
an attorney with an annual salary of $20,000. Seniority was
not considered in terminating employees in-administrative
positions, but custodial and maintenance people were termi-
nated principally on the basis of seniority. The number of
skilled craftsmen was reduced, and the duties of these
craftsmen were assumed by lower paid general maintenance em-
ployees with the concurrence of the trade unions involved.

     We found that the consultant had previously been associ-
ated with a consulting company. The president of the con-
sulting company confirmed the consultant's prior employment
and advised us that his performance while with the company
had been very satisfactory. In commenting on the consul-
tant's character, educational background, technical compe-
tence, and judgment, the president recommended him without
reservation.

     The terminations announced by the Board of commissioners
on February 6, 1970, reduced the number of employees from
335 to 232. Of the 103 employees terminated, 23.3 percent
were Caucasians. The percentages of Caucasian employees to
total employees before and after the terminations were
24.2 percent and 24.6 percent respectively.

     The acting executive director of the Authority told us
that fewer employees had been dismissed than had been recom-
mended by the consultant because 23 employees had resigned
and thus had reduced the number to be terminated to 106.
He added that he and the consultant had reviewed the termina-
tion list and had further reduced the number to be dismissed
to 103.

     On February 6, 1970, each of the 103 employees was
given 2 weeks' severance pay along with a letter signed by
the board of commissioners which stated that the employee
was being terminated for economic reasons. The employees
were not required to remain on duty for the 2-week period
covered by the severance pay. The 2 weeks' notice was in
accordance with personnel procedures adopted by the board of
commissioners in a meeting held January 27, 1970. Previous

                            38
procedures required a 30-day notice. The Authority's pro-
cedures were changed in January on the basis of a legal
opinion of the Authority's general counsel that the proce-
dures could be revised to conform with personnel practices
of the St. Louis Land Clearance Authority which on Janu-
ary 2, 1970, had revised its notice period from 30 days to
2 weeks.

     We found that the Authority had placed the names of the
103 terminated employees on a preferential reemployment
list. The president of the Alliance submitted a letter to
all Alliance members that requested their assistance in
finding suitable employment for the terminated employees.
The personnel section of the Authority made numerous efforts
to assist these employees in finding employment.

     As of April 20, 1970, 31 of these employees had been
rehired by the Authority, 20 in their previous positions.
The Authority's records for five of the employees showed
that they were custodians and had been rehired on the basis
that they were erroneously included in the staff reduction.
The Authority's personnel director told us that the other
15 employees (12 custodians and three firemen) had been
reinstated after project managers and maintenance foremen
had complained that the cutback was too severe. The Direc-
tor also informed us that the number of employees to be re-
instated had been determined by the Alliance's management
consultant. Of the 11 additional persons rehired, eight
were rehired to fill vacancies and three to fill temporary
positions.

     HUD regional office representatives informed us that
they had felt for some time that the Authority was over-
staffed and had considered the staff reduction to be an
elimination of unneeded positions. They informed us also
that HUD had not become involved in the hiring and firing
of housing authority personnel, since HUD regulations re-
quired only that housing authorities adopt and comply with
personnel policies comparable to local practice. According
to these HUD officials, this is generally interpreted to
mean the practice of the local city government. The Author-
ity's personnel director told us that the Authority's per-
sonnel policy and procedures were based on the personnel
policy and procedures of the city of St. Louis.

                             39
                         CHAPTER 6

             DISPOSITION OF AND ACCOUNTING FOR

                RENT MONEY NOT PAID DURING

                  THE TENANT RENT STRIKE

     The Authority's records showed that rents amounting to
$769,205 had not been paid to the Authority by tenants dur-
ing the period of the strike. This amount included $681,193
owed by tenants who were residing in the projects when the
rent strike ended and $88,012 owed by tenants who had moved
from the projects before the rent strike ended. After ap-
plication of rent credits and other adjustments agreed to in
the strike settlement, the balance of rent due from tenants
for the strike period was $344,609. (See table on p. 44.)

     The Authority's records did not show how much of the
$769,205 was withheld by tenant strikers as opposed to ten-
ants who were merely delinquent or were possibly using the
strike as a convenient excuse for not paying rent. The rec-
ords indicated, however, that some tenants had been making
their rent payments (hereinafter referred to as withheld
rents) to strike leaders. These rent payments amounted to
about $220,900.

     The memorandum of intent and understanding signed at
the end of the rent strike and dated October 29, 1969, in-
cluded the following agreements:  (1) tenants who were in
arrears in their rent payments were to be allowed 2 years in
which to repay the full amount of the rents owed, (2) a re-
payment schedule for each tenant was to be established after
completion of an audit of strike leaders' finances by a firm,
or firms, of Certified Public Accountants (CPAs), (3) repay-
ment schedules were to be established for each tenant by a
committee on withheld rents for each project, with committee
members to be appointed by the rent strike chairman in each
project, (4) rent credits were to be allowed to tenants who
had resided in the public housing projects since February 1,
1969, and who had paid higher rent than was charged by the
Authority before October 1, 1968, (5) a new rent schedule
was to be established and made retroactive to October 1, 1969,

                             40
and (6) lawsuits against tenants initiated by the Authority
during the strike would be dismissed and court costs would
be paid by the Authority.

WITHHELD RENT DEPOSITED
IN BANKS

     During the first 3 months of the strike, rents of ten-
ants participating in the strike were collected by the strike
leaders and deposited in bank accounts established by the
strike leaders for this purpose. The Authority filed a law-
suit, on April 23, 1969, petitioning the court to require
the banks and strike leaders to pay the withheld rents to
the Authority. When the suit was filed, the banks froze the
accounts which contained $108,580 and rejected the rent
strikers demands for withdrawal of funds. On May 21, 1969,
the banks placed all the money in the rent strikers' accounts
into the custody of the court.

     The Authority received $108,580 from the court and re-
corded it in a special disbursing fund account. On the ba-
sis of a CPA's audit, as required by the memorandum of in-
tent and understanding, $108,017 was applied to rents owed
by tenants. The amount of rent paid by each tenant to the
strike leaders was determined from lists prepared during the
CPA's audit of strike leaders' finances and from information
supplied by the strike leaders. The lists showed the amounts
collected by the strike leaders at each project by tenant
name and apartment number.

      In addition to the $108,017 applied to rents owed by
tenants, refunds totaling $509 were made by the Authority
for (1) amounts which the banks had erroneously placed in
the custody of the court and (2) the duplicate payment of
rent by a tenant. The amount of rent credited to tenants'
accounts for the 3-month period and the above refunds totaled
$,108,526 or $54 less than the amount of funds received from
the court. The difference of $54 resulted because the
moneys received from the court and collections by strike
leaders as identified by the CPA's audit did not agree.

     Although we did not attempt to verify the accuracy of
the adjustments made to tenants rental accounts or refunds
made to tenants, we noted that the Authority had received

                             41
complaints from tenants which indicated that errors might
have occurred in distributing the amounts received from the
court. For example, a former tenant of the Blumeyer project
complained that she did not receive full credit for rent
money that she had paid to the rent strike leader in her
housing project. The tenant stated that, although she had
paid the rent strike leader $140, the Authority had given
her credit for only $70. She provided the Authority with
canceled checks to document her claim. Authority officials
told us that an additional credit of $70 could not be given
to the tenant, even though it appeared that she had a valid
claim, since the Authority had accounted for all but $54 of
the rent money received from the court. The officials
stated that the Authority would not credit tenants with
amounts that totaled more than the $108,580 received from
the court but that this complaint and any others received by
the Authority would be referred to the CPA firm for resolu-
tion.

RENT MONEY HELD
BY STRIKE LEADERS

     After the Authority filed its lawsuit, the strike lead-
ers began holding rent money collected from tenants in safe-
deposit boxes and other places. According to the lists pre-
pared by the CPA firm, the money collected by the strike
leaders after the lawsuit was filed totaled $112,907.

      The October 29, 1969, memorandum of intent and under-
 standing stated that all withheld rents in the control or
physical custody of the strike leaders would be returned to
the striking tenants "*** under such circumstances and con-
ditions as shall be reasonably calculated to cause same to
be paid over to the Authority with prompt dispatch." A
strike leader advised us that these funds had been returned
to the tenants when the strike ended. He also informed us
that some strike leaders had encouraged the tenants to take
advantage of the strike settlement conditions which allowed
the tenants up to 2 years to repay the full amount of all
rents owed.

     During visits to various low-rent housing projects, we
interviewed 28 tenants to ascertain the difficulties they
might have experienced in receiving credit for or return of

                             42
amounts paid to the rent strike leaders after the rent money
deposited in the banks was attached by the court. Of the
28 tenants, 11 informed us that they had paid rent to the
strike leaders but had experienced no difficulties in obtain-
ing credits or refunds and had heard of no difficulties ex-
perienced by other tenants. Of the tenants we interviewed,
17 advised us that they had not paid rent to the strike
leaders.




                             43
STATUS OF RENTS OWED
FOR STRIKE PERIOD

    An official of the Authority informed us that all rent
credit computations required by the strike settlement agree-
ment as outlined on pages 6, 7, 40, and 41 were completed
and recorded on the Authority's records as of July 22, 1970.
After deduction of the required rent credits and the with-
held rent attached by the court and paid to the Authority,
the rent not paid of $769,205 during the rent strike period
was reduced to $344,609, as summarized below.

Total rents not paid from February 1,
  1969, through October 31, 1969 (rent
  strike period)                                     $769,205
Less rent funds attached by the court
  and applied to rents owed by tenants                108,017

                                                      661,188

Less rent credits allowed as part of
  the rent strike settlement agreement:
    Rent credits (adjusting rents owed
      by tenants for month of October
      1969 to level of new rent sched-
      ule effective October 1, 1969)      $108,871
    Rent credits (adjusting rents owed
      by tenants for the period Febru-
      ary 1 through September 30, 1969,
      to level of rent charged immedi-
      ately prior to October 1, 1968)      188,075
    Credits for cost of lawsuits
      charged to tenant accounts--cost
      to be paid by the Authority          19,633     316,579

Balance of rents owed during rent
  strike due from tenants after credits              $344,609

    The rent strike settlement agreement provided that, af-
ter the CPA firm completed the audit of the rent strike
leaders' finances, the Authority would compute the appli-
cable rent credits and provide the rent strike chairman at
each project with a list of tenants in his project whose
rent payments were in arrears. The list showed the net

                            44
amount that each tenant owed. Each rent strike chairman
was to appoint a committee on withheld rents. These com-
mittees were t6 establish an equitable payment schedule for
each tenant which would provide for the tenant to repay the
net rent owed within 2 years. As of July 1, 1970, 300 ten-
ants had signed rent repayment agreements providing for the
repayment of back rents totaling $106,340.

    We noted that the agreements for 281 of the 300 tenants
were not limited to rents owed for the strike period but
also included rents for other months which were in arrears
at the date the rent payment agreements were established.
An Authority official informed us that he would not object
to this practice as long as the money was collected. For
action taken to collect rent owed by the tenants who moved
before the strike ended, see chapter 7.

    As of June 1970, some portion of the rent owed by ten-
ants was paid; however, identification of the amount paid
would have required analysis of about 5,600 tenant ledger
accounts which we deemed impractical. We did examine, how-
ever, the Authority's tenant ledger accounts for 48 selected
tenants and determined that some portion of the rent owed
by the 48 -tenants had been paid, as indicated in the follow-
ing summary:

Rent not paid by 48 tenants during rent
  strike                                             $26,839
    Less rent credits:
         Credits 'for tenants' share of
           money attached by court        $4,472
        Rent credits per strike settle-
           ment agreement                 4,035

Total credits per strike settlement                    8,507

Back rent owed after rent credits                     18,332

    Less cash payments                                 5,029

Balance of rent owed--June 1970                      $13,303




                             45
    The accounts showed that as of June 1970 nine of these
tenants had paid the amounts owed in full, 13 had made pay-
ments to reduce the amounts owed, and 26 had made no pay-
ments.

    Alliance executives and HUD regional office personnel in-
formed us that they had not been involved in collecting
rents owed. A consultant to the Secretary of HUD, however,
was involved in the rent strike settlement negotiations when
the procedures for payment of the rents owed were established.




                             46
                           CHAPTER 7

              STATUS OF DELINQUENT RENTALS

     Records of the Authority show that the total amount of
delinquent rentals owed by tenants at September 30, 1968,
the end of the Authority's fiscal year, was about $69,600
and that by March 31, 1970, the amount owed had increased
to about $671,700. This increase was primarily the result
of rents not paid by tenants during the rent strike. (See
ch. 6.)

     After making adjustment for credits during the applic-
able period, delinquent rentals owed by tenants increased
as shown below.

                                      Transactions
                                   10-1-68   10-1-69        Balance
                                     to        to           owed by
                                   9-30-69   3-31-70        tenants

Amount owed on September 30,
  1968                                             $ 69,600
Rents and other charges      $4,915,500 $1,516,700

Credits pursuant to strike
  settlement agreement            101,100      217,800
Collections                     4,373,200    1,138,000

Total credits and collec-
  tions                         4,474,300       1,355,800

Increase in amounts owed       $    441,200 $     160,900   602,100

Amount owed on March 31,
  1970                                                      $671,700

     The March 31, 1970, balance of $671,700 represents the
net of $698,600 owed to the Authority and $26,900 which the
Authority owed tenants with credit balances. Of the $698,600
owed to the Authority, $537,100 was owed by tenants resid-
ing in the housing projects and $161,500 was owed by tenants
who had moved out of the projects.


                               47
     The Authority's records showed that, on March 31, 1970,
5,647 tenants were living in the low-rent housing projects
and that 2,257,or about 40 percent, were delinquent in their
rent payments. Of the $537,100 owed by tenants residing
in the projects at March 31, 1970, $489,800 had been owed
by 1,410 tenants for periods in excess of . months.

     Examples of tenants who owed substantial amounts of
delinquent rent at March 31, 1970, follow.

    Tenant A

    The tenant paid no rent after March 11, 1969, when he
    paid the rent due on March 1, 1969. After making this
    payment, the tenant still owed $73 which was due for
    the month of February 1969. As of June 1, 1970, after
    application of retroactive rent and court cost credits,
    the balance owed by the tenant amounted to $1,073. On
    June 18, 1970, the tenant vacated the housing unit
    after receiving notice that the Authority planned to
    initiate a lawsuit for the delinquent rent.

    Tenant B

    The tenant paid no rent after August 4, 1969, when he
    paid the rent due on August 1, 1969. A balance of $89
    due for the month of July 1969 remained unpaid. As of
    April 1, 1970, the rent owed by the tenant amounted
    to $716. On April 8, 1970, the tenant vacated the
    housing unit without giving notice to the housing man-
    ager. After application of credits for retroactive
    rent, a security deposit, and a portion of the April
    1970 rent, the balance owed was $627.27. On June 22,
    1970, the Authority turned this account over to a col-
    lection agency.

    Tenant C

    The tenant paid his March 1969 rent on March 28, 1969,
    and made no further payments until March 1970. After
    the March 1969 payment, he owed $107, which represented
    rent due for the month of February 1969 and $10 for
    court costs. As of April 1, 1970, after application of
    rent and court cost credits and a March 1970 rent

                            48
     payment, he owed $1,212.15. On June 3, 1970, the ten-
     ant agreed to pay $50.51 monthly which would result in
     payment of the amount owed over a 2-year period.

EFFORTS TAKEN TO COLLECT
DELINQUENT RENTALS

     During the rent strike, the Authority filed more than
500 lawsuits against tenants for collection of delinquent
rents and possession of the housing units. The lawsuits
were in conformance with the Authority's procedures which
had been in effect since April 1966 and with HUD's recom-
mended rent collection procedures. The rent strike settle-
ment agreement stated that the lawsuits would be dismissed
and that the cooperation of the tenant affairs board would
be enlisted by the Authority before filing additional suits.
The criteria for filing lawsuits for the collection of rent
were to be established jointly by the tenant affairs board
and the Authority.

     On May 18, 1970, the acting executive director of the
Authority provided the managers of each housing project
with new rent collection procedures. The procedures pro-
vided for participation by the tenant affairs board in deci-
sions regarding time extensions for the payment of delinquent
rentals or lawsuits for the collection of the rents. The
tenants affairs board was authorized to direct the Author-
ity as to whether to sue delinquent tenants or to follow
some other course which would ensure that the delinquent
rent would be immediately paid in full.

     On May 18, 1970, the Authority's acting executive di-
rector issued a special notice to all public housing resi-
dents that delinquent rentals due for the period October 1,
1969, through May 31, 1970, must be paid in full no later
than 3:30 p.m. on May 29, 1970. The notice stated that
failure to pay would result in eviction proceedings against
the tenant. He also provided each housing project manager
with a copy of a form letter to be sent to delinquent ten-
ants who did not comply with the special notice of May 18,
1970, and who had not contacted the tenant affairs board to
report a hardship. The form letter provided space for in-
sertion of the amount owed and stated that a suit would be


                             49
filed against the tenant unless the Authority received full
payment of the delinquent rent within 3 days.

     From June 2 to June 15, 1970, the Authority mailed
such letters to 53 tenants. By June 30, 1'70, the Authority
had filed lawsuits against 20 of the 53 tenants; however,
one of these lawsuits was canceled because the tenant moved
out of the housing project the day before the suit was
filed. Of the remaining 33 tenants who received letters,
three signed payment agreements, two others vacated their
premises, and no action had been taken relative to the other
28 tenants as of July 1970. These actions were the first
significant collection efforts made by the Authority after
the rent strike ended in October 1969.

     Alliance and HUD regional office representatives advised
us that they had no active role in collecting the delinquent
rents. The HUD officials stated that "Recommended Rent
Collection Procedures" had been issued by the regional of-
fice to all housing authorities but that they were only
recommendations.

COLLECTION OF DELINQUENT RENTALS
OWED BY VACATED TENANTS

     A form letter was generally used by the Authority to
notify vacated tenants of the amount of delinquent rents
owed and to request payment as soon as possible. The letter
advised the vacated tenants that their accounts would be
submitted to a collection agency if no response was received
within 7 days.

     We were advised by Authority personnel that the col-
lection agency's fee was 50 percent of the amount collected.
Therefore, assuming that the Authority is unsuccessful in
collecting the $161,500 owed on March 31, 1970, by vacated
tenants, the maximum the Authority can expect to recover
by sending the accounts to the collection agency is $80,750.

     The acting executive director of the Authority advised
us that delinquent accounts of $10 or more were submitted
to the collection agency. Vacated tenants' accounts which
are returned by the collection agency as uncollectible are
considered worthless by the Authority and are then written

                            50
off at the end of each fiscal quarter with the approval of
the board of commissioners.

     During the fiscal year ended September 30, 1969, the
Authority's former board of commissioners approved the write-
off of vacated tenants' accounts amounting to about $72,600.
The new board of commissioners had not approved the write-
off of any vacated tenants' accounts as of June 30, 1970.

     Our review of records on vacated tenants' accounts
submitted to the collection agency during the period Octo-
ber 1, 1968, through March 31, 1970, showed:

Accounts with collection agency on
  9-30-68                                           $ 21,127
Add new accounts sent to agency from
  10-1-68 to 9-30-69                                 116,552

                                                     137,679

Less accounts returned as uncollectible
  by the collection agency                $81,514
Agency's collections                       10,257     91,771

Accounts with collection agency on
  9-30-69                                            45,908

Add new accounts sent to collection
  agency from 10-1-69 to 3-31-70                      32,736

                                                      78,644

Less accounts returned as uncollectible
  by the collection agency                 44,799
Agency's collections                        9,290
Credits for moneys attached by court
  during rent strike                        1,597     55,686

Accounts with collection agency on
  3-31-70                                           $ 22,958

     We were advised by Authority personnel that the Author-
ity had not approved the write-off of many vacated tenants'
accounts and had delayed sending many vacated tenants'

                             51
accounts to the collection agency after the rent strike
ended because they were awaiting the completion of the com-
putation and recording of the rent credits which reduced
the delinquent rents owed by vacated tenants as well as those
owed by resident tenants. As previously stated, the rent
credit computations were not completed and recorded on the
Authority's records until July 22, 1970.

     We were advised by HUD regional office personnel that
HUD became involved with the write-off of delinquent rents
only during financial audits of the housing authorities and
that this involvement extended only to determining whether
the write-off of delinquent rents had been approved by the
Authority's board of commissioners.




                            52
                         CHAPTER 8

                     APPROVAL AND USE

                  OF MODERNIZATION FUNDS

     On January 19, 1970, HUD approved the'expenditure of
$1.1 million by the Authority for a modernization program
prepared by the Alliance after the tenant rent strike ended.
The funds for the program were made available from unex-
pended funds previously provided by HUD under a rejuvenation
program. HUD's approval of the modernization program was
contingent upon the Authority's agreement to terminate work
on the other program at the earliest practicable date. On
May 19, 1970, the Authority requested HUD's approval of an
additional program estimated to cost about $1.4, million to
provide security services for the housing projects.   On
August 26, 1970, HUD headquarters advised the Fort Worth
Regional Office that the proposed program was not approved
because the providing of security services was not con-
sidered by HUD to be a part of the modernization program
but that the regional office was authorized to approve the
proposed program as an operating activity of the Authority
to the extent that it was determined to be feasible from an
operational and financial standpoint.

     Prior to the tenant rent strike, the Authority had re-
quested HUD's approval of an extensive modernization pro-
gram; however, HUD did not approve the program because the
Authority did not meet HUD's requirements.

     HUD procedures state that the purpose of a moderniza-
tion program is to upgrade low-rent housing projects
through a comprehensive program involving (1) the correction
of extensive physical deterioration of the site, structures,
or equipment, (2) the replacement of outmoded equipment or
outmoded aspects of structures, and/or (3) improvements in
the grounds, structures, or equipment by alteration or by
the provision of additional structures or equipment. The
procedures also provide for any needed improvement in the
management of the projects. Therefore the HUD procedures
require local authorities to develop long- and short-range
programs in the following areas.


                             53
     "(a) Modernization and rehabilitation of buildings
          and grounds.

     "(b) Involvement of the tenants in the plans and
          programs for the modernization of the project,
          changes in management policies and practices,
          and expanded services and facilities.

     "(c) Expansion of community service programs and of
          community facilities where needed to meet the
          requirements of the program.

     "(d) Intensification of efforts to assist low-
          income families to realize their potential
          for economic advance.

     "(e) Increased employment by Local Authorities of
          low-income tenants."

     Funds for modernization programs are advanced by HUD as
temporary loans; when the work is completed, the local hous-
ing authority obtains permanent financing through the sale
of notes or bonds to the public and uses the proceeds to re-
pay the loans. The amount of permanent financing becomes a
part of the total development cost of the program for which
HUD provides financial assistance in the form of annual con-
tributions. The annual contributions are used by the local
housing authority to retire the notes or bonds.

MODERNIZATION PROGRAMS
AFTER THE RENT STRIKE

     On July 29, 1965, HUD approved an Authority budget of
about $6.9 million for a rejuvenation program for work to
be performed at two (Pruitt and Igoe) low-rent housing proj-
ects. This rejuvenation work was stopped on March 1, 1970,
in accordance with the Authority's agreement with HUD that
work on this program would be suspended when HUD approved
the expenditure of $1.1 million modernization funds in Jan-
uary 1970. The Authority had recorded expenditures of
$4.8 million for rejuvenation work at the Pruitt and Igoe
projects.



                              54
     After the St. Louis Civic Alliance for Housing was
formed, the Alliance established a task force committee and
staff to recommend a modernization program for the Author-
ity. The recommended program, which was estimated to cost
$1.1 million, was presented to the HUD regional office on
January 14, 1970, by the acting director of the Alliance
and a consultant to the Secretary of HUD. The program was
a combination consolidation and modernization program which
provided for the modernization of vacant apartments and the
moving of tenants from partially occupied buildings into
the rehabilitated apartments. Buildings totally vacated
were to be fenced and secured from vandalism. It was antic-
ipated that this would provide significant savings in opera-
tional and maintenance costs.

     On January 19, 1970, the HUD regional office authorized
the expenditure of $1.1 million and advised the Authority
that the funds were available from unexpended funds previ-
ously approved for the rejuvenation of the Pruitt and Igoe
projects. The regional office stated that its approval was
contingent upon the Authority's agreement to suspend, at
the earliest practicable date, rejuvenation work under way
at the Pruitt and Igoe projects. The $1.1 million program
is referred to as "Phase I" of the total modernization pro-
gram which had not been fully planned as of June 22, 1970.

     The Authority had incurred costs of $101,855 for work
under phase I by May 31, 1970. The budget and costs in-
curred are shown by work item below.

                                      Approved       Costs
              Work item                budget      incurred

Administrative overhead              $    75,000   $ 33,484
Architectural engineering services        70,000      4,465
Fence vacant buildings                    66,000      3,500
Unit remodeling                          483,000     55,239
Elevator repairs                          81,200      1,674
Moving costs                              80,800       -
Guard service                            144,000      3,493
Contingency                              100,000       -

    Total                            $!1X00000     $101,855


                             55
     On May 19, 1970, the Authority requested HUD's approval
of an additional program estimated to cost about $1.4 mil-
lion to provide security services for all the Authority's
housing projects. This request was supported by a report
on a study made by the University of Missouri--St. Louis
which was initiated and financed by the Alliance.

     On May 27, 1970, the HUD regional office forwarded the
Authority's budget for the $1.4 million modernization pro-
gram to HUD headquarters in Washington, D.C., with the fol-
lowing comments.

     "We have reviewed the proposal and recommend your
     approval for the following reasons:

     "1. This security is necessary before Phase I of
         their modernization program can continue.
         Their original request was predicated upon
         the implementation of a security program.

     "2. Security is required before favorable action
         can be taken to correct the existing problem
         of excess vacancies.

     "3. The proposed security program does involve
         tenants and includes employment of tenants.
         Most of the one million plus dollars for
         nontechnical salaries will be paid to
         tenants.

     "4. The last audit report stated that one-third
         of maintenance cost was due to vandalism.
         This must be reduced to protect ordinary
         maintenance as well as physical modernization
         of the structures."

     On August 26, 1970, HUD headquarters informed the re-
gional office that it did not consider the cost of provid-
ing security services, except for the cost of capital equip-
ment, as part of modernization but that it would not object
to the approval of the proposed program as an operating ac-
tivity to the extent that the program was determined to be
feasible from an operational and financial standpoint.


                             56
MODERNIZATION PROGRAMS
BEFORE THE RENT STRIKE

     On April 22, 1968, the Authority submitted a low-rent
public housing modernization program budget of $9.4 million
to the HUD regional office. Deletions made by the regional
office reduced the budget submitted by the Authority to
$7.3 million.

     The HUD regional office advised the Authority that ap-
proval of its request for modernization funds was contingent
upon a firm commitment that the Authority would take certain
actions which would contribute materially to the social and
economic advancement of tenants and to a realistic plan for
achievement of financial solvency.

     On May 23, 1968, the regional office submitted the Au-
thority's adjusted modernization program budget to HUD head-
quarters. The regional office advised its headquarters that
the $7.3 million included $222,704 .for reimbursement of the
Authority's operating funds for nonroutine expenditures made
during the period July 1, 1967, to March 31, 1968. The re-
gional office recommended that immediate authorization be
granted the Authority to reimburse its operating funds from
development funds previously allocated for rejuvenation of
the Pruitt and Igoe projects. The regional office stated
that the rejuvenation funds could be reimbursed from the
first advance of modernization funds.

     On August 7, 1968, the HUD headquarters approved the
regional office recommendation for reimbursement of the
$222,704 but stated that approval of the total modernization
program would not be given until the Authority adopted an
effective tenant services program, including meaningful ten-
ant involvement.

     The records showed that Authority officials visited the
HUD headquarters office to work out details of a moderniza-
tion program that would meet HUD's requirements. On
March 10, 1969, the regional office was advised by its head-
quarters that the modernization program had been reactivated
but was reduced from $7.3 million to $5 million which could
be used for any projects except Pruitt and Igoe. The Au-
thority submitted a revised modernization budget of

                             57
$5.5 million to the HUD regional office on March 12, 1969,
and a plan for adding social services personnel to the Au-
thority's staff.

     On March 18, 1969, the regional office submitted the
revised budget to its headquarters and recommended reductions
to $5 million and prompt approval of the program. This rec-
ommendation was made about 1-1/2 months after the rent
strike started on February 1, 1969.

     The Authority, not having received any notice of ap-
proval by May 20, 1969, requested the regional office to
furnish information on the status of the approval of its mcd-
ernization budget. The regional office replied that it
could not determine whether any funds would be made available
for the program and that the Authority should proceed on the
assumption the modernization program would not be approved.

      HUD's records showed that, on October 15, 1969, the HUD
Assistant Secretary for Renewal and Housing Assistance stated
that the modernization funds in the amount of $5 million were
being withheld because prior to June 30, 1969, when HUD's
fiscal year 1969 funds expired, the Authority had not met
HUD's requirement that the Authority adopt an effective ten-
ant services program, including meaningful tenant involve-
ment. He stated that fiscal year 1970 funds were being with-
held pending action by the Congress on HUD's 1970 appropria-
tion.

      In January 1970, the HUD headquarters furnished the re-
gional office with information which showed that $5 million
was allocated for the Authority's modernization program for
fiscal year 1970. HUD later withdrew this allocation with
the understanding that it would be reinstated in fiscal year
1971.

     A regional office official advised us that the $5 mil-
lion was not made available for use by the Authority because
HUD was not going to spend additional modernization funds in
St. Louis until physical security of public housing was en-
sured. He informed us that the $5 million would be reallo-
cated after HUD updated a modernization survey it had made
in April 1968. He stated, however, that the follow-on mod-
ernization survey would not be performed until the results

                              58
of the $1.1 million modernization program were evaluated and
a physical security program was satisfactorily established
because earlier rejuvenation improvements at the Pruitt and
Igoe projects were promptly destroyed by vandals.




                             59
                          CHAPTER 9

                       SCOPE OF REVIEW

     The review was performed primarily at the office of
the St. Louis Housing Authority in St. Louis, Missouri.
During the review, information was also obtained at the var-
ious low-rent housing projects of the Authority, including
discussions with tenants residing in the projects. We re-
viewed pertinent regulations and documents and interviewed
officials of the Department of Housing and Urban Develop-
ment's headquarters in Washington, D.C., and regional of-
fice in Fort Worth, Texas. Discussions were held with offi.
cials of the St. Louis Civic Alliance for Housing, members
of the board of commissioners of the Authority, and five
other persons in St. Louis who--Congressman William L. Clay
believed--could supply information pertinent to our work.




U.S. GAO Wash., D.C.
                             60